Can the State Continue to Subsidise Big Business?

Even the most hardened of political anoraks might have missed the fact that something rather important happened this week, indicating the direction of travel for the Labour Party.

It came in a speech by Ed Miliband.

It would not be surprising if you missed this important moment. After all, the media is more interested in whether Miliband's leadership is on the rocks, and thus more interested in exposing ideological fault lines in Labour. And if it isn't giving a platform to the usual malcontents, it is fixated on the 'vital' question of whether Ed is handsome or not. (Wouldn't it be nice to have a grown up media? But we digress.)

In recognising the limitations on future public spending, given the coalition's inept handling of the economy, Miliband suggests an innovative way of enabling policies that would, in sunnier times, have been paid for by the state.

He argued that instead of the winter fuel allowance being paid to pensioners by the state, and thus out of general taxation, legislation would be passed to ensure that the energy companies had to offer the lowest tariff to older users. Similarly, increases in rail fares would be limited to 1% above the rate of inflation, ensuring that pay-outs to the rail companies' shareholders were not subsidised by the travelling public.

Since the financial crisis started, the right has claimed that we can no longer afford a large public sector and an interventionist state. In his speech, Miliband suggested a different way of looking at things that suggests a new social democratic response. It is centred on a fact that few have recognised:

We can no longer afford to subsidise the private sector.

It is one thing to think put forward policies to support small and medium sized businesses that contribute to local economics: and Labour should rightly be developing innovative policies that enable such businesses to thrive. It is quite another to support the profits passed on to shareholders from the public purse.

Here are some troubling facts.

Shareholders in the privatised rail companies have effectively been subsidised by government contributions or extortionate hikes in rail fares for improvements to the rail service that should have been met by the companies themselves.

HS2 is being built using public money - £32billion of it! Once completed, the line will be passed to a private company. Rail fares will undoubtedly be high in order to maximise profits. Who do you think will use it? Business people, commuters? And who do you think will benefit? Again, public money will have been used to provide an enhanced, subsidised service for business and shareholders.

And then there's health.

The scandal surrounding faulty breast implants used by private health care providers has ended up with the NHS rather than the companies themselves picking up the tab for their replacement. We are glimpsing the future of healthcare under this government. We know already that we shall be publicly funding the future 'NHS' only for that money to go into the pockets of private practice. Currently American and German companies are showing interest; some are already providing a service. The state will not only be subsidising business, it will be subsidising foreign businesses. As businesses, profits will, presumably, be passed onto shareholders. Profit will be promoted at the expense of the patient.

And there is a bigger scandal yet.

Rather than pay employees a living wage, some of the biggest firms in the UK prefer to maximise profits for their shareholders. Supermarkets are one example where wages are low, resulting in the state subsidising the private sector by assisting low paid supermarket employees through the system of tax credits.

This has a double effect - people are unable to provide for themselves and their families without relying on the state to subsidise their cost of living; but more importantly the state has to pick up the tab for big business' failure to pay the living wage.

The tax credit system, used by the last Labour government to support poorer families, was an important way of raising the standard of living of the low paid. But it has also acted as a subsidy for employers who fail to pay their workers properly.

No more.

In the good times, the state and the taxpayer (that good ol' boy of the Right) might have been able to support poor business practice. But times of austerity demand a different approach. The private sector has to start paying its own way. It's a sad fact, but that is where we are.

In challenging a culture of subsidies for shareholders, Ed Miliband has signalled a new approach for Labour.

That is what responsible capitalism means and why it signals a new way forward for the Left.